EUROPE NEWS: Big and bigger

In the not-too-distant past, senior staff at CBRE Investors in Europe were wondering what they could do to spice up the platform. Its UK business, in particular, had gained a reputation for specialising in industrial deals – hardly a glamorous area – and it lacked a full spectrum of European funds. Now that the ink is dry on its $1.2 billion takeover of ING Real Estate Investment Management (REIM), the newly named CBRE Global Investors can look forward to new product launches utilising its engorged 600-strong investor base.

Speaking to PERE in the wake of the completion of CBRE’s takeover of ING, CBRE Global Investors’ global president Matt Khourie said the firm intends to launch “one or two new” products next year. Given the banking issues in Europe, one of the funds it is eyeing in the region is a distressed debt offering.

Khourie stressed that launching a European distressed debt fund would be leveraging off the firm’s existing track record, as CBRE Global Investors already has a real estate debt platform in North America, which it started in 2008 in response to dislocation in the US capital markets. Called CBRE Capital Partners, it is headed by Ethan Penner and manages two debt funds that have been gaining some traction this year.

According to a report published earlier this year, CBRE Capital Partners finished the second quarter with a “flurry of loan activity,” providing optimism for a European version. Giving a flavour of the types of situations the debt funds have become involved with, CBRE Capital Partners said its main fund had closed on $135 million in deals including three new first mortgage loans backed by hotels and one by a pool of office properties. It also closed on an investment into a low-leveraged B-note backed by an office property and a junior class investment in a pool of first mortgages backed by multifamily properties. In the second vehicle, called the Special Situations fund, it closed a preferred equity investment backed by a pool of properties for $37 million.

Of course, the opportunity to replicate success of US debt funds in Europe is not lost on other firms. For example, Prudential Real Estate Investors raised €554 million for such a strategy in June. At the same time, The Blackstone Group is raising Blackstone Real Estate Special Situations Europe, knowing that banks and borrowers are creaking. LaSalle Investment Management is deploying capital primarily in the UK debt space via a special situations vehicle that could be expanded to Germany and France. In addition, it is thought that Goldman Sachs is weighing a Europe distressed real estate debt vehicle.

CBRE Global Investors, however, will not focus solely on new products next year. Khourie noted that the firm wants to grow its existing open-ended, pan-European core fund that is a legacy from the former CBRE Investors business. It also will seek to add more equity to a European shopping centre vehicle, which was launched by ING REIM in March 2010.

“We have had some good success raising capital this year,” said Khourie. “With the merger now behind us, I think we are going to have better success and create additional capital over the next 12 months.”
With 600 investors worldwide, it should to be possible to raise extra equity, and that will be a good test of the benefits of the merger.